A devastating price slump is hammering British Columbia's coal sector as a U.S.-based company halts mining in the province while other players face mounting pressure.
Walter Energy Inc. highlighted the troubles Tuesday when it announced its decision to stop B.C. mining until coal prices recover.
Last week Virginia-based James River Coal Co. filed for bankruptcy protection in the United States, underscoring tough times in the global industry.
The coal industry has traditionally been a key driver of B.C.'s economy, with companies generating billions of dollars in revenue every year and employing thousands of workers. Now producers are starting to question the viability of their projects as prices hit new lows.
In 2011, coal prices soared to $300 (U.S.) a tonne. Prices for metallurgical coal have since tumbled to roughly $120 a tonne, hurt by ample new supplies from Australia, slower-than-forecast economic growth in China and a shift away from long-term coal pricing contracts that had provided some stability.
The temporary shutdown of Birmingham, Ala.-based Walter Energy's Wolverine mine near Tumbler Ridge in northeastern B.C. resulted in the layoffs Tuesday of 415 workers.
Another 280 employees are to be affected, largely due to suspending the nearby Brule operation by July.
Last year, the company temporarily closed its Willow Creek mine and laid off 250 B.C. staff. The miner – which has coal mines in Canada, the United States and Britain – produces metallurgical (or coking) coal, an ingredient used to make steel. The company expects to incur second-quarter severance charges of $7-million related to the B.C. operations.
Coal from northeastern British Columbia is transported by rail to the northwest part of the province, where the Ridley Terminals Inc. export facility in Prince Rupert serves as a gateway to Asian steel mills. Walter Energy's recent layoffs will leave it with only skeletal B.C. crews to process the existing inventory of coal destined for export to Japan and South Korea.
"We do view this as a temporary action on our part," Walter Energy spokesman Thomas Hoffman said in an interview from Alabama. "We're in a cyclical business. We know we're at the bottom of the cycle, and if history is any teacher, we expect the cycle to begin to move up at some point. And in that move up, prices will recover to the point where we will feel that we can get acceptable value for our resources in Canada and we'll bring the mines back."
Walter Energy chief executive officer Walter Scheller said the northeast B.C. coal reserves remain valuable assets. But given low coal prices, "our best course of action at this time is to idle these operations until we can achieve reasonable value from these reserves," he said in a statement. The Brule and Willow Creek operations are part of the Brazion mining properties near Chetwynd in northeastern B.C.
Vancouver-based Teck Resources Ltd. has been delaying its decision about whether to restart its Quintette coal mine in the region. So far, the company has spent more than $200-million (Canadian) of the $860-million budgeted for project.
Raymond James Ltd. analyst Alex Terentiew said a steady slide in coal prices appears to have slowed and stabilized for now. "We maintain a fairly negative near-term outlook regarding the metallurgical market, given our prognosis of current levels of oversupply, continued supply growth from a handful of players and only modest growth in demand," he said in a research note Tuesday.
While the market is depressed, the coal sector is stronger than it was in 2000, when prices dipped to $40 (U.S.) a tonne. Some new projects are still in the works.
Vancouver-based HD Mining International Ltd. is considering plans for a $300-million (Canadian) coal venture. In 2013, the Federal Court of Canada dismissed a challenge by two unions over HD's hiring of about 200 temporary foreign workers from China to kick-start a preliminary phase.
London-based Anglo American PLC began a $200-million, multistage expansion project in 2013 in an effort to effectively broaden its B.C. mining territory by about 500 hectares. Anglo American already runs the Trend mine near Tumbler Ridge.